World Bank development committee chairman Agustin Carstens yesterday led a chorus of praise for the planned expansion of lending to middle-income countries (MICs). Carstens, Mexico’s finance minister, told Emerging Markets that new lending rates introduced for MICs by Bank chief executive Robert Zoellick “will make a difference” – and suggested that his country would take advantage of them.
The Bank has sharply reduced the interest rate on loans to MICs, to 5 basis points above Libor, and eliminated fees. “I commend the Bank for [those] quick actions”, Carstens said, on the eve of today’s development committee meeting that will review the Bank’s work. The lending rates “will make a difference, and if we take into account the technical advice we get and the loan process and preparation, it makes it very attractive for Mexico to borrow from the World Bank.”
Rogerio Studart, the executive director representing Brazil, told Emerging Markets that the new loan terms are “a breakthrough in leadership”. He added: “There had been resistance to this. That was one of the reasons the [World Bank] group was losing relevance.”
Studart added that work with MICs will involve adopting new modalities. Greater flexibility is required, because MICs do not need loans at the national level but rather for state and municipal governments. This requires lending in local currency, and greater flexibility, because the current procedures are too cumbersome and costly for sub-national governments.
The MICs, in turn, have a strong contribution to make in combatting poverty. “The institution needs MIC to create net income that provides the cross-subsidies that allow for lending and grants to IDA and the poorest countries.” The Bank’s new approach revives a relationship with MICs that has been neglected in recent years, when the institution dedicated most of its efforts to poor countries.
MICs have argued that the Bank’s mission of building combating poverty cannot overlook relatively more developed countries, where fully 70% of the world’s poor live. The committee has “an ambitious agenda”, Carstens said. He expected a “productive” meeting on the six priority themes that Zoellick has mapped out for the Bank.